Alaska Senate approves austere budget with $1,000 PFD ahead of final negotiations

JUNEAU — The Alaska Senate on Wednesday approved an austere operating budget for the next fiscal year ahead of final negotiations expected with the House.

Legislators are grappling this year with a dire fiscal outlook due to diminished oil revenue. The Legislature is facing a $680 million-plus deficit over two fiscal years based on status quo spending. In response, the Senate has proposed cuts across the board.

The Senate’s budget would pay a $1,000 Permanent Fund dividend and $172 million for a one-time school funding boost, in case a permanent increase is not approved this year.

The Senate approved the spending plan Wednesday on a 16-4 vote.

Republican Senate minority members applauded reductions in the budget before the final vote. But they called for a larger dividend to be paid this year.

All 14 members of the bipartisan Senate majority voted for the budget, alongside Republican minority Sens. Mike Cronk and James Kaufman. Four GOP minority members — Sens. Mike Shower, Shelley Hughes, Rob Yundt and Robert Myers — voted no.

In December, Alaska Gov. Mike Dunleavy proposed a budget with a statutory $3,900 dividend that was anticipated to lead to a roughly $2 billion deficit. Dunleavy also proposed around $60 million in additions to the budget that were rejected by the Senate. On Tuesday, Dunleavy formally requested that lawmakers withdraw most of his spending requests, citing a “precipitous” drop in state revenue.

Members of the bipartisan Senate majority have favored new revenue measures, and opposed using savings, to balance the budget. The Legislature approved a bill Wednesday that was intended to raise revenue by taxing out-of-state businesses that operate online. But the House has shown little appetite for other Senate bills that would hike oil taxes.

Bethel Democratic Sen. Lyman Hoffman, who manages the Senate’s operating budget, said this year’s spending plan was preparing for fiscal “headwinds” that could hit Alaska. He cited potential deep cuts at a federal level and diminishing oil revenue. He said that the state’s fiscal outlook could be even more dire next year.

“We all wish we could provide all the services that every Alaskan desires, but that is not reality. The bottom line is our constituents want and deserve more,” he said.

The Senate’s budget for the fiscal year that starts July 1 would make reductions across state agencies. It includes $25 million in cuts to the Department of Corrections, around $15 million in cuts to the Alaska Permanent Fund Corp., and $12 million in reductions to the Department of Public Safety by rejecting Dunleavy’s plans to reopen an Alaska State Troopers post in Talkeetna, along with additional Village Public Safety Officers in the Arctic.

Some of the Senate’s proposed cuts have proven controversial. Child care advocates are urging the Legislature to keep at least $14 million in the budget for subsidies and grants for a sector in crisis.

Wasilla Republican Sen. Shower, the Senate minority leader, voted no on the budget, but he joined his colleagues in thanking the majority for a collaborative process. He said the state’s fiscal picture meant the Senate Finance Committee was “handed a bag of lemons and was told to make lemons.” But he said that he remained concerned how the state’s budget would be sustainable in the long term.

The Senate’s budget is substantially different from one approved by the House last month. The House’s budget was projected to have a roughly $250 million deficit. It includes a $1,400 dividend and a backup, one-time, $253 million increase in school funding. The Legislature in April failed to override Dunleavy’s veto of a school funding boost of that size.

Lawmakers noted that the Senate’s $1,000 PFD would be the smallest dividend ever paid to Alaskans when adjusted for inflation. But it would free up $264 million in revenue for other spending.

The Republican Senate minority proposed a handful of amendments. Most were withdrawn before a vote was held.

Shower proposed the same $1,400 dividend as the House, which follows the “75-25” formula where three-quarters of an annual draw from the Permanent Fund goes to the state services, and the rest goes to the dividend.

The $1,400 PFD would be paid by overdrawing the Permanent Fund beyond an annual limit in state law that is intended to protect the fund. Shower’s amendment was rejected along caucus lines on a 14-6 vote.

North Pole Republican Sen. Myers suggested that overdrawing the Permanent Fund would not necessarily be “a bad thing.” He said that would help the Legislature prioritize the private sector over the public sector.

The Senate’s budget bill now heads to the House for a concurrence vote. The House could agree to the Senate’s changes to the budget or reject them and continue negotiations.

Typically, a conference committee hammers out differences between the two legislative chambers’ budgets. That way, the same budget bill can pass through both chambers and onto Dunleavy’s desk for his consideration.

Senators said that they expect a budget conference committee to start its work next week. The regular legislative session must end by midnight of May 21.